Credit: Wine Industry Advisor

By: Ryan O’Hara, MHW CEO

Whether you’re just starting out launching a new beverage alcohol brand or looking towards your next phase of growth, raising capital to fund your growth is one of the most critical decisions along your brand’s journey. The types of capital are abundant, and the process can often feel overwhelming. Here are a few key points to consider before raising investment capital.

1. Establish a clear, compelling brand story

This is true for success for any beverage alcohol brand today, but it is crucial to your ability to communicate your brand’s identity to potential investors or creditors. Today, beverage alcohol consumers care more about brand identity and story than ever before, and you need to be able to articulate how your brand will stand out in a crowded market.

2. Build a passionate, experienced team

Investors will want to see that you have a team that is not only passionate about the brand vision but also has the relevant experience capable of executing your plan.

3. Create a comprehensive business plan, and don’t forget about the long-term 

You have to know what your ask is and why you’re asking for it. Investors want to know how the capital they are entrusting to you will be spent. A crystal-clear brand vision paired with a detailed business plan will lead to more productive conversations with investors.

While short-term growth is important, investors want to see that you have a plan for long-term success and growth. A detailed business plan outlines your brand’s objectives, a go-to-market plan and target customer(s), marketing strategies, operational plans and financial projections with a focus on sales growth and cash flow.

4. Research your options and focus on the right fit

Before you approach any investors, and certainly before you accept any capital, it is imperative that you do your research and due diligence on potential investors.  Key things to focus on include ensuring that the investor(s) have a good reputation (broadly and with other companies they have worked with), align with your brand’s vision and goals, and ideally have a track record of success in the industry.

There are many types of capital that you could potentially access. First, if you have the means to self-fund, be thorough and honest in your risk assessment and tolerance. When considering outside equity investors, you must consider the tradeoff between giving up some form of control/future profits in exchange for capital. Friends and family are often the first place entrepreneurs turn to for investment capital. While this can be a great option, it’s important to ensure that you have a clear agreement in place and that all parties understand the risks involved.

Today, there is an increasing interest from institutional investors in the beverage alcohol space, including beverage alcohol focused private equity (PE) or venture capital (VC) funds. Oftentimes, you can find investors that can provide more than just capital, such as expertise in distribution options or consumer marketing, but be certain to understand the terms of the investment as institutional investors are sophisticated investors.

Debt can be a great source of capital without trading ownership. However, debt impacts your cash flow in the form of interest and principal payments, as well as potentially carrying additional covenants that you must meet. It has also gotten more expensive recently. Traditional bank debt generally requires a couple years of positive cash flow and financial statements. Asset backed lending facilities (ABL) require pledging your accounts receivable and/or inventory as collateral for borrowing funds in the short term. This can be a great option for funding rapid growth without needing to secure bank debt or give up equity. Note that you generally need a track record, and this type of borrowing often has a minimum level of sales.

Crowdfunding is relatively new to the beverage alcohol space but increasing in popularity. Crowdfunding platforms let entrepreneurs raise capital from small or large groups of individuals. If your brand has a strong, passionate following and/or appeals to a specific niche market this could be an interesting option to pursue.

5. Seek regulatory and legal counsel
Beverage alcohol is a highly regulated industry, and failing to comply with regulations can cause you serious headaches, legal issues, and reputational damage. A solid compliance partner will highlight and solve for essential considerations that brands need to navigate the U.S. market. It’s also essential to seek professional legal advice. These are complex processes and ensuring that you have your interests protected and are well represented in any negotiation is crucial.

6. Be prepared to pitch!

Whether you’re meeting with a traditional bank lender, beverage alcohol angel investor or strategic partner, you should go into each conversation prepared. Practice your pitch, know your business plan and tighten your message to ensure that the uniqueness of your brand’s value proposition and vision are highlighted. Make sure to understand what each investor is looking for in an investment and tailor your pitch. Investors also want to see that you are transparent and honest about your brand’s potential and any potential risks. Being transparent with investors can help build trust and credibility, which can make it easier to secure investment capital.

Launching and building a beverage alcohol brand in the U.S. market is a complex process that requires careful planning, research, and execution. Combining passion, focus, and authenticity with the proper preparation can increase your chances of building a successful beverage alcohol brand that resonates with consumers. Raising capital to help your business get to its next phase of growth requires a similar level of effort and diligence to best position your brand for success.